Industry Update

MarketWatch: Biotechnology

Daiichi Sankyo: an alternative acquisition strategy

Daiichi Sankyo has made an offer to gain a majority control over Indian generics firm Ranbaxy. While a number of key Japanese players have hit the product-driven acquisition trail of late, Daiichi Sankyo's proposed offering for generics firm Ranbaxy signals a new strategy, with the cheaper R&D and manufacturing capabilities of the Indian firm representing the key attraction and not product ownership. Japanese pharmaceutical company Daiichi Sankyo has announced that it intends to take a majority control over India's biggest drug maker, Ranbaxy, in a deal which could be worth up to $4.6 billion. Once the deal has been unanimously approved by both boards of directors, it will value Ranbaxy at roughly $8.5 billion. As part of the deal Daiichi Sankyo will buy the 34.8% stake in Ranbaxy held by the founding Singh family, and make an open offer for a further 20% of Ranbaxy shares. Daiichi Sankyo is Japan's third largest drug maker, with a total of $7.9 billion in total branded prescription pharmaceutical sales in 2007. The company has an overriding interest in the cardiovascular therapy area, with its key revenue generator being the anti-hypertensive olmesartan franchise (Benicar, Benicar HCT and Azor). Generics firm Ranbaxy, headquartered in New Delhi, markets generic versions of off-patent blockbuster therapies, such as Merck & Co's statin Zocor (simvastatin) and Bayer Schering's antibiotic Cipro (ciprofloxacin). With Ranbaxy reporting strong historical sales growth, the company has seemingly benefited from the spiraling costs of global healthcare and a resulting drive from governments to increasingly utilize the cheaper generic alternatives. This announcement by Daiichi Sankyo is the most recent in a long line of acquisitions made by Japanese drug manufacturers. These have included Takeda's $8.8 billion purchase of US biotech Millennium Pharmaceuticals, Eisai's acquisition of cancer specialist MGI Pharma and Astella's 2007 capture of monoclonal antibody research firm Agensys. Significantly though, Daiichi Sankyo's proposed deal is the first generics player sought by a Japanese branded prescription pharma company. However, Daiichi Sankyo will not be the first major pharmaceuticals group to hold generics interests - Swiss giant Novartis commands a dominant position in this market courtesy of its Sandoz unit. In acquiring Ranbaxy not only is Daiichi Sankyo gaining extra sales revenues, but perhaps more significantly, in-roads into cheaper manufacturing and R&D capabilities. A current trend within the pharmaceutical market is outsourcing of R&D and manufacturing to emerging markets such as India. Daiichi Sankyo's drivers for the Ranbaxy acquisition are therefore twofold: to gain access to the high growth generics market and to streamline its operating costs in order to boost operating profits in an increasingly cost-conscious pharmaceutical market.

Datamonitor, July 2008

www.datamonitor.com - 23 -